What Is The Role Of Statistics In Finance?

2 Answers

Statistics can play a very important role in finance. Without statistics, economists will not be able to understand and know what is going on with a country's finance and what sort of state it is in. On smaller scales such as a business or company, the finance statistics are important because the accountants for that company need to know whether their business is making enough of an income.

• Definition

Statistics is defined as the study of collecting, organizing and interpreting data. Statistics can deal with loads of different aspects of collecting data such as finance and even surveys, studies and experiments.

There are also several different methods in which statistics can be gathered.

• Experimental studies

Causal statistical studies can be conducted in two ways: An experimental study or an observational study. In both types, the effect of an independent (can be changed) on a dependent variable (stays the same). Data is gathered and then the correlations and relationship is observed.

• Experiment

There are several steps that a person must undertake to successfully perform a statistical experiment.

Firstly they must plan their research, including all the aspects of the experiment they are going to undertake. This includes any ethical issues and selecting subjects.

The design of the experiment must be select, in order to reduce any possible chance of external variables having unwanted effects on the dependent variable that is being observed.

The experiment can then be performed and the data analyzed according to experimental protocol.

A secondary analysis will be conducted, along with suggesting a new hypothesis for future experiments.

The results of the study will be presented.

• Observational study

This type of study will take place when the researcher has no intention of changing the independent variable to see if there is an effect on the dependent variable.

• Levels of measurement

The four levels of measurement are: Ratio, interval, ordinal and nominal. Each of these provides a different amount of usefulness when analyzing the data depending on what data has been gathered.